Existing-Home Sales Emerge Triumphant

Existing-homes sales have been up against unfavorable odds including inventory shortages, soaring home price appreciation, and stagnant household income growth. However, they defied those odds and came out on top for the second consecutive month.

The National Association of Realtors (NAR) reported Friday that existing-home sales, which include completed buyer transactions of single-family homes, townhomes, condominiums, and co-ops, rose 1.7 percent in April to a seasonally adjusted annual rate of 5.45 million. March's total was revised to 5.36 million and sales are now up 6.0 percent year-over-year in April.

According to NAR, single-family home sales rose 0.6 percent to a seasonally adjusted annual rate of 4.81 million in April from 4.78 million in March, and are now 6.2 percent higher than the 4.53 million pace a year ago.

NAR Chief Economist Lawrence Yun noted that the April existing sales data "signals slowly building momentum for the housing market this spring."

"Primarily driven by a convincing jump in the Midwest, where home prices are most affordable, sales activity overall was at a healthy pace last month as very low mortgage rates and modest seasonal inventory gains encouraged more households to search for and close on a home," he said. "Except for in the West—where supply shortages and stark price growth are hampering buyers the most—sales are meaningfully higher than a year ago in much of the country."

Realtor.com Chief Economist Jonathan Smoke said that the two-month streak of increases has brought existing home sales in line with the seasonally adjusted pace of sales at the beginning of the year and 6 percent higher than last year. This shows that momentum is continuing from a strong start to the year as the peak months for sales approach.

"We’ve now seen 44 straight months of tight supply. In these conditions, home values have strong support, but potential buyers will continue to face challenges finding a home for sale that meets their needs," Smoke stated. "The biggest challenge to prospective buyers is tight supply, and that’s why we’re seeing the age of inventory drop dramatically. At the same time, we estimate that sales to first-time buyers are up 11 percent so far this year, and they comprise the largest source of this year’s growth in sales."

The data showed that the median existing-home price for all housing types in April was $232,500, up 6.3 percent from $218,700 in April 2015. This increase marks the 50th consecutive month of year-over-year gains. The median existing single-family home price was $233,700 in April, up 6.2 percent from April 2015.

Inventory fared extremely well for April, rising 9.2 percent to 2.14 million existing homes available for sale, but it is still 3.6 percent lower than a year ago when inventory reached 2.22 million homes. NAR reported that unsold inventory is at a 4.7-month supply at the current sales pace, up from 4.4 months in March.

More first-time buyers came into the housing market in April. The data found that the share of first-time buyers was 32 percent in April, up from 30 percent both in March and a year ago.

Yun stated, "The temporary relief from mortgage rates currently near three-year lows has helped preserve housing affordability this spring, but there's growing concern a number of buyers will be unable to find homes at affordable prices if wages don't rise and price growth doesn't slow."

He continued, "Looking ahead, with demand holding steady and supply levels still far from sufficient, the market for entry-level and mid-priced homes will likely continue to be the most competitive heading into the summer months."

Stephen Melman, J.D., National Association of Home Builders (NAHB) Director of Economic Services said, "The Pending Home Sales Index increased 3.5 percent in February and 1.4 percent in March, so the continued upward trend in existing sales reported in April was not unexpected. Builder sentiment remains cautiously optimistic, and the tight inventory of existing homes bodes well for new single-family sales in 2016."